TSB may still attract a buyer ahead of share sale: CEO

More than 600 bank branches being rebranded as TSB by Britain's Lloyds Banking Group could be bought by a trade or financial buyer before a flotation being planned for next year, the head of the new business said.

Lloyds was ordered to sell the branches by European regulators as a penalty for receiving a 20-billion-pound ($32 billion) government bailout in the 2008 financial crisis.

However, a deal with the Co-operative Bank collapsed in April amid concerns over the Co-op's capital strength.

Lloyds now plans to run the business on a standalone basis ahead of a listing in summer 2014, although TSB's new boss Paul Pester said that could change.

"It's absolutely possible that someone may come in and say this is a fantastic business we'll make you an offer for it. That's something we can leave Lloyds to deal with," Pester told reporters at the launch of the new business in central London.

The return of the 200-year-old TSB brand to the high street after an 18-year absence is the result of action by regulators and the government to introduce greater competition in the country's banking sector.

Pester said TSB would focus on a local banking model, "supporting economic growth in the communities it serves". It will become Britain's 8th biggest retail bank with 4.5 million customers and a 4.3 percent share of the current account market.

However, Lloyds' Group Retail Director Allison Britton told Reuters TSB's management would initially be granted only "semi- independence" from its parent.

"They can do quite a lot of things themselves but they still might have to ask me about many things. They can propose pricing changes for products but I have to approve them. The same would go with things like risk appetite," she said.

An influential cross-party committee of lawmakers set up to review standards within the industry said in June that a lack of competition in UK retail banking was an important reason why poor standards of conduct persisted in the industry.

Susan Kramer, a Liberal Democrat peer who sat on the committee, said there was still a lot to be done to break the dominance of Britain's biggest four high street lenders - RBS , Lloyds, Barclays and HSBC - which control around three-quarters of retail accounts.

"There's a long way to go to get to the point where consumers have a real range of choices, where competition bites in such a way that it changes the behavior of the big players," she told Reuters.

Lloyds' Britton said the bank was aiming for a stock market listing for the TSB business in the summer of 2014 and that the sale of the business would be done in stages.

"It will be quick. We set ourselves a number of goals - finishing this divestment, repaying the government, returning to dividends and profitability. The sooner we can do all of those things the better," she said.

Britton said she anticipated investor appetite for the stock, despite a number of other bank share issues scheduled for the coming months including a rights issue by Barclays, the sale of the government's stake in Lloyds itself, and a possible listing of 315 branches by Royal Bank of Scotland (RBS).

"It's a nice balanced strongly-capitalized fully UK-orientated bank with a good distribution network. I think it'll be a great stock but it all comes down to the market and the price on the day," she said.

($1 = 0.6398 British pounds)

(This story corrects size of government bailout in the second paragraph)

(Editing by Jane Merriman and Mark Potter)